What incentive does a one person company still have?
A one person company still limits the member’s liability to the amount unpaid on that member’s shares. The 2021 rules removed the forced conversion at ₹50 lakh of paid-up capital or ₹2 crore of turnover. There is no minimum paid-up capital, and there is no tax rate that applies only to this company.
What did the 2021 rules remove?
From 1 April 2021, an Indian citizen can incorporate a one person company whether that citizen is resident in India or otherwise. Resident in India means a person who stayed in India for at least 120 days in the immediately preceding financial year. The rules that forced a conversion once paid-up capital crossed ₹50 lakh, or turnover crossed ₹2 crore, were omitted. The company may still convert to a private or a public company when the member chooses. How the company is formed is on the one person company page.
Which old limits are gone?
The Act does not require ₹1 lakh of paid-up capital. It does not require ₹5 lakh for any other company either. A one person company has one member. It does not have a ceiling of fifty shareholders, because there is only one. A nominee is named at incorporation and becomes the member only if the member dies or becomes incapacitated. There is no rule that residents must hold 60 percent of the capital. The company cannot list its shares.
How is the company taxed?
The company is taxed as a domestic company. The rate is 25 percent where the turnover or gross receipts of the previous year 2023-24 did not exceed ₹400 crore, and 30 percent otherwise, plus the 4 percent health and education cess. Section 115BAA is a base rate of 22 percent before surcharge and cess, and it disallows Chapter VI-A deductions except section 80JJAA and section 80M. Recognition as a startup is a separate approval and is not granted by incorporation. Who can be recognised is on the startup recognition page.
Which filings remain?
A one person company does not hold an annual general meeting. The financial statements are filed within 180 days of the financial year end. The annual return is filed within 60 days of the date those statements are deemed adopted, not within 60 days of the year end. A company with share capital files the commencement declaration in Form INC-20A. That declaration is not a certificate of commencement issued as a separate licence. The dates are on the OPC annual compliance page, and the declaration is on the INC-20A page. The bank account is opened after incorporation, with the papers on the bank-account page.
Frequently asked questions
Four questions cover capital, the old conversion, a non-resident citizen, and tax.
Is there still a ₹1 lakh capital floor?
No. The minimum paid-up capital was removed. An OPC does not need ₹1 lakh, and another company does not need ₹5 lakh, as a statutory floor.
Must the company convert at ₹50 lakh?
No. From 1 April 2021 the forced conversion at ₹50 lakh of paid-up capital, or ₹2 crore of turnover, does not apply. Conversion is voluntary.
Can a non-resident Indian citizen form one?
Yes. From 1 April 2021 an Indian citizen can form an OPC whether resident in India or otherwise. Resident means a stay of at least 120 days in the preceding financial year.
Does the company get its own tax slab?
No. An OPC is taxed as a company. There is no OPC rate beside the company rate.
Sources
An OPC is defined in section 2(62) of the Companies Act, 2013. The 2021 change is the Companies (Incorporation) Second Amendment Rules, 2021, in force from 1 April 2021.